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Taxation of Payments Made to Members of the General Assembly

G.S. 120-3 Pay of members and officers of the General Assembly provides that members are to be paid a monthly expense allowance. Monthly expense allowances made pursuant to a non-accountable employee expense reimbursement plan are includible in the taxable income of the members, subject to the applicable employment taxes. The taxation of non-accountable employee expense reimbursement plans are addressed by Internal Revenue Code Section 62(a)(2)(A).

G.S. 120-3.1 Subsistence and travel allowances for members of the General Assembly subsection (a)(1) provides that a weekly travel allowance for each week or fraction thereof that the General Assembly is in session is payable to each member. This travel allowance is to be computed by multiplying the actual round trip mileage from that members home to the City of Raleigh by the business standard mileage rate. The inclusion in taxable wages is dependent on the election and availability of IRC Code Section 162(h).

For electing members residing 50 or more miles from the State Capitol building, this weekly travel allowance will be a nontaxable reimbursement of transportation expenses incurred in going from their tax home (residence) while in pursuit of a trade or business. For members whose residence is 50 or fewer miles from the State Capitol building, the weekly travel allowance represents a reimbursement of nondeductible commuting expense. Therefore, these payments represent a taxable fringe benefit and should be included in members? taxable wages, subject to the applicable employment taxes (Reg. 1.162-2(e)).

G.S. 120-3.1 Subsistence and travel allowances for members of the General Assembly subsection (a)(2) provides for payment of a travel allowance equal to the business standard mileage rate whenever the member travels, whether in or out of session, as a representative of the General Assembly or one of its committees and commissions.

Providing that an election has been made under IRC 162(h), those members living 50 or more miles from the State Capitol building should not be taxed on travel allowances received while traveling as a representative of the General Assembly. From the time these members leave their tax home, they are deemed to be traveling in pursuit of a trade or business.

Members residing 50 or fewer miles from the State Capitol building should be taxed on that portion of the travel allowance payable that represents the distance from their residence to the State Capitol Building multiplied by the business standard mileage rate. This portion of the payment represents a non-deductible commuting expense reimbursement (Reg. 1.162-2(e)). The rest of the 120-3.1(a)(2) reimbursement, if any, should be considered a nontaxable employee business expense reimbursement and should not be included in the wages of the member.

G.S. 120-3.1 Subsistence and travel allowances for members of the General Assembly subsection (a)(3) provides for payment of a subsistence allowance for meals and lodging at a daily rate equal to the maximum per diem rate for federal employees traveling to Raleigh, NC, (as set out at 58 Federal Register 67959, December 22, 1993) while the General Assembly is in session and "while traveling as a representative of the General Assembly or of its committees or commissions, or otherwise in the service of the State."

The taxation of subsection (a)(3) payments is dependent both upon whether a Code Section 162(h) election has been made and whether the member is traveling as a representative of the General Assembly or one of its committees or commissions. This is because subsection (a)(3) also authorizes payments when members travel with the approval of the Speaker or President Pro Tempore while otherwise in service of the State .

Otherwise in the service of the State means subsistence at the federal employees travel rate ($104 per day) can be paid by other State agencies to members serving on the boards, commissions and committees not directly a part of the General Assembly. While there is little guidance in the Code or Regulations concerning what constitutes a committee of the legislature for purposes of Sec. 162(h)(2)(B), the Chief Legal Counsel of the IRS has indicated that non-General Assembly sponsored boards, committees, and commissions are precluded from allowing members to make the special 162(h) election.

Members serving during the regular or special session, and on committees of the General Assembly when not in session, and living 50 or more miles from the State Capitol building and electing 162(h) treatment are not taxed on the subsistence allowances received since they are deemed to be away from home overnight in pursuit of a trade or business. Members residing less than 50 miles from the State Capitol building must include the subsistence allowance in taxable income, subject to the applicable employment taxes, unless they are traveling away from home overnight. Overnight travel makes the subsistence payments a nontaxable employee expense reimbursement.

The taxation of subsistence reimbursements made by a State agency, other than the General Assembly, depends upon whether the member is traveling away from home overnight. Members who certify on the travel expense reimbursement form that they were away from home overnight will incur no tax consequence upon being paid the subsistence, and therefore, no IRS reporting responsibility to the paying agency. Those members who do not certify overnight travel status should have these amounts reported as non-employee compensation on IRS Form 1099-MISC if the payments during the calendar year exceed $600.

G.S. 120-3.1 Subsistence and travel allowances for members of the General Assembly subsection (a)(4) provides for reimbursement of registration fees as permitted by the Legislative Services Commission. These payments will be nontaxable to the members, providing that a properly approved receipt is furnished to the agency that substantiates the payment as an ordinary and necessary business expense to the member.

The OSBM?s Budget Manual Section 5, Travel, Transportation, and Allowances , subsection (X)(D)(1)(d) provides for reimbursement of travel expenses by personal vehicle. Since members of the General Assembly serving on State boards, commissions and committees may receive mileage reimbursements for service paid by an agency other than the General Assembly, there should be no tax reporting of mileage reimbursements regardless of the distance to the member?s home since there is no employment relationship involved. When an employment relationship does not exist, the commuting rules do not apply. The member?s residence is considered his tax home and the expense of traveling from the tax home to board, committee or commission meetings are non-reportable.